Forms of Business Ownership SchoolRack

Forms of Business Ownership
Chapter 5
5-2
Did You Know?
PROPRIETORSHIP
• 1 person
• Easiest of all types
Pros: Cons:
• All profit goes to •Must shoulder entire
owner debt of business
• Total control over •Creditors can take
business personal assets to
satisfy business debt
Proprietorship cont’d
• Most businesses start off this way (hobby or
no experience)
• Most required to start is a license/permit, and
registration
• Tax advantage—reduces your personal
income and thus the taxes you pay. The
downside? All your assets are fair game to
satisfy business debt.
PARTNERSHIP
• Run by 2 or more people
• Decisions are shared
• No separation of business and personal assets
Pros Cons
• more money and • if business fails, can lose
knowledge everything, including
• share the burden of personal wealth
work • If partner leaves or dies,
must be dissolved
CORPORATION
• Separate legal entity
• Owned by shareholders
• Money raised by selling shares of stock in the
business
• Subject to more laws and regulations (see articles of
incorporation)
Articles of
Incorporation
•Defines ownership
and operating
procedures
•Names a board of
directors (those who
make major decisions
for the business)
Corporation cont’d
Pros Cons
• Liability is limited to • decisions made by a
amount invested board
• Easy expansion • record of operations
must be provided
• Sell stock to change • corporate taxes must
ownership be paid
• Survives beyond life • individuals also pay
of original owner taxes on earnings
Specialized partnerships &
Corporations
• Limited liability partnership (can be difficult and
costly to set up)
• Joint venture (operated by multiple businesses for a
limited time)
• S-corporation (taxed only on personal earnings)
• Limited Liability Company (offers protection to
owners, no article of incorporation needed
• Nonprofit Organization (benefits public, tax free,
must still be government approved
Co-ops & Franchises
• Cooperative (owned by members, serves a
specific interest such as buying in bulk or
market their own products together, increase
bargaining power)
• Franchise (allows another person to operate a
business in a specific way, while keeping
ownership and maintaining control of all
products/services